UK: Termination of Employment and Share Option Rights
Authors: Graham Mitchell, Sophie Jackson, and Charlotte Stern
New case illustrates the importance of only making post termination commitments that the organisation intends to fulfil.
Mr Dixon worked for a market research company, Globaldata, from 2006 and in 2011 he was granted share options via the company’s unapproved employee share option plan. In 2014 he was told that if his performance did not improve then his employment might be at risk. HR sent him a draft settlement agreement which didn’t mention the share options.
Following this, he had a meeting with the CEO and he was asked to continue working for a few months longer, as well as being asked to agree to various restrictive covenants. Mr Dixon acquiesced, understanding that his share option entitlements remained unaffected. The CEO subsequently confirmed that his share options would be added to the settlement agreement and would vest in line with current conditions. This was then included in the settlement agreement terms. However, after termination, his employer refused to pay out on his share options, saying that the share scheme did not permit post termination pay out.
The court concluded that Globaldata had not validly exercised its discretion to extend the share options post the termination of the claimant’s employment. However, the Mr Dixon had relied on the CEO’s assurances – and that created a ‘proprietary estoppel’ entitling him to remedy.
In summary this meant that the court found that there had been:
- A representation or promise or other assurance, leading to an expectation of proprietary interest
- Reliance by the claimant on that interest, and
- Detriment to the claimant as a result.
This then allowed the court to make an award that reflected the proprietary interest.
Key Action Points for Human Resources and In-house Counsel
Employers should be aware of the importance of following through on promises to employees and the potential for employees to bring claims outside of the Employment Tribunal, where costs are more of an issue.
